http://freebeacon.com/columns/next-republican-agenda/The Next Republican AgendaColumn: How to strike a balance between populism and free enterprise
BY: Matthew Continetti
November 4, 2016 5:00 am
One of the most important speeches of the 2016 election was delivered in Utah in June to an audience of ultra-rich Republicans that included Mitt Romney. The speaker was Edward Conard, who joined Bain Capital after graduating from Harvard Business School in 1982 and worked in private equity for twenty-five years before retiring to become, of all things, a pundit.
Conard thrives in debate. His first book, Unintended Consequences, was a revisionist history of the mortgage boom and bust as well as a defense of tax-cutting and high CEO pay. His second, The Upside of Inequality, was published in September. (The Washington Free Beacon had an excerpt from it here.) Conard’s style is direct and bracing, and what he has to say is grounded in decades of experience in the real world of investment and finance. He has been wildly successful. There is no question that he is an elite. Which makes what he told his peers all the more important.
Supporters of free enterprise, he acknowledged, have a problem that is larger than Donald Trump or Hillary Clinton. The problem is that the success of an information economy that values skilled and highly skilled labor creates a political backlash. And the reasons for this backlash are the very things that make the system prosperous.
Here is how it happened. The industrial economy was constrained by limits on capital and labor. That is no longer the case. “There’s a near infinite supply of labor now and there’s a near infinite supply of capital.” What constrains the information economy is rather a lack of “properly trained talent” and an unwillingness to take risks.
America has been fortunate: We have networks of talent in place in Silicon Valley whose risk-taking, when successful, is rewarded handsomely. “We are much more successful at achieving lottery-like successes that increase income inequality than the rest of the world.”
That creates the dilemma. The rise in income inequality not only generates envy but coincides with economic disruption that displaces workers who lose jobs to outsourcing and whose wages do not rise thanks to the limitless pool of unskilled labor. Conard put it in terms familiar to an observer of this campaign:
“If Whirlpool moves its plant to Mexico, economists today say, ‘Don’t worry, opportunistic entrepreneurs will swoop in and put everybody back to work and competition will force everybody to invest more capital per worker, and drive productivity back up to where it was. And the increase in productivity is critical to maintaining the high wages. But the successful entrepreneurs never show up because they have all moved to San Francisco and they’ve outsourced all of the manufacturing to Foxconn. And so these guys are left saying, ‘Wait a minute! The model doesn’t seem to work for me.’ And it doesn’t work for them.”
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